World-class Companies Downsize Annual Budget Process

I've recently concluded a series of benchmark projects for different companies in different industries, yet they all have a similar struggle.  All of them had annual budget processes that took too long, involved too many budget interations and included too much detail.  Does this sound familiar?  If so, you're not alone.  This is an area that many companies struggle with for various reasons.  While some progressive companies are getting rid of the annual budgeting cycle all together (typically for non-U.S. companies), the process is part of tradition in most companies.  Overcoming this organizational inertia can be difficult.  Additionally, many times manager's bonuses are tied to static budgets.  This also makes it difficult to significantly change the budgeting process.

While most companies haven't dispensed with the budgeting process altogether, world-class companies are working to de-emphasize the process and place more focus on the forecast.  According to one study, world-class companies complete the annual budget in 3.4 iterations instead of 4.2 iterations seen by median companies.  Additionally, world-class companies have 65 line items in their budget vs. a median of 214. 

World-class companies have come to recognize that, while the annual budgeting process has some value, it is inefficient to spend an inordinate amount of time and effort on a process that quickly becomes obsolete.  The key is to slim down the process, focusing only on the key budget line items to eliminate unnecessary detail and reduce cycle time.